“I think iron ore, copper and thermal coal prices could continue to go north this year," he says.

However, Donner doesn’t think aluminium, nickel and uranium will have the uplift to the extent LinQ is seeking, due to the reasonable supply and demand balance. Regarding the much-debated Chinese growth story – widely known to influence commodity prices – he believes the country’s growth will reaccelerate in the short term and, despite a slowdown, will remain strongly positive albeit at a rate less than that recently experienced.

Donner says lifting interest rates in China will in effect slow down gross domestic product. “It’s logical for them to do that rather than have a massive boom and a consequential problem, so it’s quite frankly better for China to be using monetary policy as a tool rather than having major volatility."

He expects “pretty good" global growth of around 4 per cent, as emerging economies including India back a stable China.

The large amounts of stimulus going through the US should ultimately create US growth but result in a weaker US dollar, Donner says. “That is a very positive mix for commodity prices . . . investment in commodities in a falling US, a stagnant [European Union] and a fairly bearish Europe is a great mixture for resources, which in an equity sense potentially could have a 40 to 50 per cent uplift."

The US Federal Reserve’s decision on Wednesday night to maintain record low interest rates and stick to a planned $US600 billion of US Treasury purchases prompted the US dollar to weaken and commodity prices to rally.

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The weakness of the US dollar versus the Australian dollar puts miners at a competitive disadvantage, Donner says, but this could be somewhat outweighed by the benefit of an influx of foreign capital into Australia, where such investors identify the strength of the resources sector and the dollar.

“It’s probably really good for Australia and because we have such a high leaning to resources even in our All Ordinaries and economy as a whole, this two-speed economy that we keep talking about will keep going for us in 2011."

Donner thinks another “metals super cycle" could kick in around 2015 as global conditions improve: economic growth in the US and Europe is likely to be back on track, and emerging Asia and India will continue growing.

In 2011, Donner’s preferred resources sub-sectors are gold, copper, phosphate, iron ore and coal, which he describes as still very attractive and generally in tight supply. In terms of their prices, Donner believes nickel could retreat a bit but not savagely, uranium and aluminium will be stable, gold will rise, with its impact mitigated against a rising exchange rate, platinum could rise due to demand for vehicles (China surpassed the US in production for cars for the first time), iron ore, zinc, coking and thermal coal will be marginally up, with copper up the most.

The LinQ fund has a stake in
Riversdale Mining
, which is the subject of a $3.9 billion takeover offer from
Rio Tinto
. Donner says LinQ has been a backer of Riversdale for five years. “Our strategy is about picking stocks which have fundamental growth from quality inventory and ultimately get discovered.
Atlas Iron
is one to watch; the Pilbara-based junior has come from nowhere to a running rate of 6 million tonnes a year," he says.

On the copper front, Donner likes
Equinox Minerals
. “Although it’s already run, it’s a pure copper play that’s going into emerging gulf countries so there’s work ahead of it there in terms of consolidation but there’ll be a few copper projects that will come together that do 30 to 100 tonnes a year."

Regarding gold, Donner says that while there are many small gold stocks around, the larger ones with established projects are the ones that tend to have the leverage to rising gold prices. “The up and coming pre-production play would be
Sandfire Resources
although it has run very strongly, it has consolidated itself at the $7 level and will likely be in production this year, which is excellent timing, of a very high grade and right in our backyard, so lots of potential there."

Donner believes the diversified large cap miners remain attractive, citing their offering of iron ore and copper for leverage.
BHP Billiton
and Rio Tinto will probably track very strongly, he says, noting there is quite a large lag between the capital expenditure in the previous two to five years that comes through in an earnings some years later. “When the GFC [global financial crisis] happened, I always said they’d generate better results in the year post-GFC only because they’d put all the effort in and additionally, they’ve got sophisticated hedging policies and a very diversified earnings stream."

“The big guys are pretty good but they’ll never show the growth that specific stock picks . . . if you can get the right collection of them, that will give you in an uplift," he explains.

LinQ’s annualised running rate of return for the half year to December 2010 was close to 25 per cent, close to its pre-financial crisis running rate of between 30 and 40 per cent from 2005 to 2008.

The fund invests its $225 million via a long-only strategy, with funds derived from superannuation funds, high net worth individuals, institutions and retail investors.

The fund began in 2005, but before its inception, Donner headed Rothschild’s West Australian project finance business, and has a strong history of fundamental analysis, having been involved in the due diligence and debt aspects of projects, before turning his attention to equities for the past 13 years.

“We don’t hedge, short or trade frequently, instead we pick stocks and evaluate them on an evolved basis . . . if you look at the stocks we’ve done well from, we sat in them for a long time," says Donner, noting EquiGold ultimately ended up in Newcrest. He adds that LinQ has long-supported Sandfire Resources as well as unlisted Brazilian iron ore play Ferrous Resources.

Donner said LinQ holds Newcrest as a consequence of a number of mergers but describes its return as “reasonable growth", noting that if you’re chasing 25 per cent a year, you’ve got to have a mixture of the smaller guys that are well picked.

“Our strategy has been to selectively back Australian management both in Australia and offshore, which we think is a better cocktail risk mix than backing offshore management on offshore projects that we don’t know as well."

LinQ’s investments are globally diverse, including coal plays in Tanzania, South Africa and Mozambique, iron in Brazil and Australia, copper in Australia and Zambia, gold primarily in Africa and Australia and nickel in Australia.

Donner describes China as well endowed, but notes it is very early for LinQ and its peers to invest there. “There’s plenty of other places to be, we just didn’t need to be there," he said, commenting on their exit.

On the nickel front, Donner favours Independence Group, and says its bonuses include the fact it pays dividends on top of its interesting add-on in gold joint venture with Tropicana. “It’s obviously quite a sizeable project and is run by Anglo, making it very, very attractive in the current gold environment."

Donner says LinQ invests where it can find growth, in companies with market capitalisations between $100 million to $3 billion.

“We also look at those below, one was $50 million and tripled in three weeks, so if you wait until threshold you sometimes miss some of that growth."

LinQ does not invest in specialty metals, and recommends investors exercise caution, warning that they are very dangerous to due to their volatile cycles and long lead times in terms of how quickly they can get into production and deliver metal for use.

“Clearly there’s tension between China and Japan on rare earths and there’s a great demand for specialty metals like chrome, vanadium, molybdenum, manganese and rare earths . . . they have their own markets and it’s too hard to determine the sustainability of their demand cycle because some, such as chrome, vanadium and manganese rely on steel demand which is dependent on iron ore production, while others rely on other baskets of commodities."

Donner believes potash is a good market for 2011 due to the need for food. “There are a lot of people in the world and a lot of agricultural land that hasn’t been set up for intensive farming unlike Europe, so we’re involved in potash in Eastern Europe and Africa."

Donner adds, “If you think about all the work that goes into a BHP decision on where they think the next run in metals is, and the lead time required to get there . . . the fact they felt it was better to buy a producing industry as opposed to generating from organic exploration probably tells us that they think potash in the shorter term is going to be in very high demand."